B1.427 Company formed for realisation
If a company is formed for the purpose of facilitating the realisation of property and the company does no more than act as the means whereby the interests of its shareholders may be properly realised in the property, surpluses made from sales of the property are not taxable as trading profits as such surpluses are capital receipts.
In Assets Co Ltd v Forbes1, the company was formed for acquiring all the assets of a bank in liquidation for a sum, sufficient to enable the liquidator of the bank, to discharge the debts of the bank and the expenses of the liquidation. The company realised the assets over a number of years, some of the assets being bad or doubtful debts and some of them the company recovered. The Court of Session decided:
(a) that there was insufficient evidence to show whether or not a surplus had been made; and
(b) that sums representing debts recovered were not trading receipts.
In Rand v Alberni Land Co Ltd2, land was held in trust for certain people variously interested in it and a company was formed with the primary object of acquiring, managing and developing the land with a view to ultimate sale. It was held that the surpluses arising from sales of portions of the property were not trading profits. The company had power to deal in other land, but it had not exercised that power. All the ordinary shares were allotted as consideration for the conveyance of the